Describes challenges in estimating potential and demand for "new-to-market" products and services. Outlines approaches and tools that yield more valid (e.g., more accurate) conclusions. Dr. Phil Hendrix, immr

1. New-to-
New-to-Market Products
- immr Perspectives on Estimating Demand, Sizing Markets
February 2010
Dr. Phil Hendrix Contact:
Director, immr www.immr.org
1 (770) 612-1488
phil.hendrix@immr.org
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2. “Missing the Mark” in New Product Research Costly
Failure, Disappointment
Type 1 Error:
Overly Optimistic Projections
Significant – Premature Investment
Projected
Demand
Moderate
from
Market
Research Missed
Opportunity
Limited Type 2 Error:
Underestimate Demand –
Client Sits “on Sideline”
Few Slow to Adopt, Sales “Take Off,”
Buy Sales Costly Viral Demand
What Customers Actually Do
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3. New-to-Market Product Research is Challenging
Resulting Errors
Challenge Explanation Type 1 Type 2
(Overestimate) (Underestimate)
Adequately Ø Brief, partial description requires respondents to “fill-in-blanks” ü ü
Describing
Concepts
Ø Drawbacks not mentioned, shown, or made explicit ü ü
Ø Text-only description fails to convey aesthetic, design features ü ü
Ø Respondent unable to experience, assess user experience ü ü
Consumers’ Ø Respondents pay less attention, devote less effort to tasks ü ü
Understanding Ø Key FAQs unanswered (in both research and real world) ü ü
Measurement Ø Reliability of single measures weak ü ü
Ø Expected time of purchase not explicitly measured ü ü
Purchase probability (stated/actual) depends on scenarios
Scenarios Ø
(features, pricing, availability, and other key aspects)
ü ü
Tested
Ø Scenarios tested fail to take into account competition, constraints ü ü
Motivation Ø Respondents not motivated to be thoughtful, “accurate” ü ü
Hurdles Ø Impact of hurdles in Conversion Funnel not taken into account ü ü
Market Ø Actual product differs from product(s) tested ü ü
Conditions
Ø Actual competitive offers differ from the offers tested ü ü
Ø Actual shopping, deciding requires more effort than in research ü ü
Ø Projections fail to take into account network, viral effects ü ü
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4. Why It’s Difficult to
Succeed with New-to-
Market Products
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5. New-to-Market Products, Services are Different
Category Examples of New-to-Market Products Characteristics of
New-to-Market Products
Health HSAs - A tax-advantaged
Insurance spending and savings account 1. Customers’ first reaction is often
that can be used to pay qualified “what is it?”
medical expenses.
2. Usually do not readily fit into
Media Amazon Kindle - existing product categories
A new type of portable reader
that can wirelessly download 3. Often deliver benefits that are
books, newspapers, magazines, new, different from existing
and blogs.
4. Frequently described by features
Consumer MIDs (Mobile Internet that are new, unfamiliar
Electronics Devices) - A new class of
lightweight (1-3 lbs), handheld 5. Awareness low, familiarity with
PC’s with 5-9” displays, powerful features and benefits even lower
enough to run many applications
6. Prospects unsure of questions to
Transportation Zipcar - Provides cars that ask, criteria, options to consider
members in urban locations can
rent by the hour.
7. Limited adoption reduces
opportunity to learn from others
Entertainment IPTV - Delivers TV 8. Effort required by prospects to
broadcasts and video over the
Internet, using a broadband learn about, evaluate, and decide
connection.
9. Standards, features expected to
Medical Stresseraser - An FDA- mature, and prices drop over time
regulated medical device that
relaxes the body and calms the 10. To adopt, customers must often
mind using clinically proven change, learn new behaviors
biofeedback training.
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6. New-to-Market Products Challenging for Prospects
Newness
Product Newness: Incremental New-to-Market Score
Does NP fit into an existing Fits into Spans Fits into a
Ease of Existing Multiple Category all
Categorizing category, a new category, or Category Categories its Own
span multiple categories?
1 2 3 4 5
Does the NP deliver benefits Delivers Delivers
Comparability Established New
comparable to those of existing Benefits Benefits
products, or new benefits? 1 2 3 4 5
Familiar Unfamiliar
Understandable Are NP’s features familiar or Features Features
unfamiliar to customers?
1 2 3 4 5
Is the NP evaluated primarily Objective Combination Subjective
Measurable Attributes Attributes
Attributes on objective or subjective
attributes?
1 2 3 4 5
Compatibity Does the NP require customer No Moderate Significant
Change in Change Change in
to change behavior (e.g., to Behavior Behavior
purchase, install, or use)?
1 2 3 4 5
Trialability Can the NP be experienced Low Cost/ Moderate High Cost/
Effort Cost/Effort Effort
easily, or does it require
significant effort, commitment? 1 2 3 4 5
< 12 “Me Too” New Products
Newness 13-18 Innovative New Products Total Newness Score Ü
Score 19-30 New-to-Market Products
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7. Few Prospects for NTM Products Actually Buy
Typical
Scenario
Prospects Holy
Grail
Need not Significant,
compelling or compelling
urgent Need
Status Quo Dissatisfied with
Acceptable Status Quo
Conversion
Might Funnel Aware of Need,
Recognize Need, Solution, Brand,
Solution and Messaging
Understands some Understands
Features, Unsure Key Features,
about Benefits Benefits
Skeptical Believes
of Claims claims
Trial, Purchase Trial, Purchase
Difficult Easy
Perceived Risks, Risks minimized;
Inertia, Competitors Buyers Incentives, Offers
Delay Purchase Trigger Purchase
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8. Biggest Hurdle Ü Understanding Features, Benefits
Conversion
Funnel
Chasm For New-to-Market Products
Conversion ... Understanding
Funnel narrows Key Features
sharply at... and Benefits
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9. New-to-Market Chasm Slows Market Penetration...
... and dramatically drives up the cost of customer acquisition.
Prospects
Conversion
Funnel
As the ...Time and Cost to
Buyer-to-Prospect Acquire Customers
ratio shrinks... Increase
Buyers
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10. NTM Chasm Dramatically Reduces Odds of Success
Likelihood of Success
New to 40-55% 5%
Company
25-40%
New
Product’s
NTM Chasm
Relation to
Adjacent 50-60%
Company’s Prospects slow to
Existing purchase, new-to-
Products market product stalls
Overlaps
Existing 60-75%
10%
“Me too” Innovative New-to-Market
Product Newness
Source: immr analysis; Framework adapted from George Day, Is it Real? Can We Win? Is it Worth Doing? HBR, Dec. 2007
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11. Insights about Doing
Research on
New-to-Market Products
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12. Expectations, Hype Heighten the Challenge
For Companies Ü Expectations often unrealistically high within client team, among executives
Introducing New-to-
Market Products Ü Considerable speculation, even hype, among industry analysts and observers
Ü Significant investments, big bets, and reputation often at stake
Ü Launch and results closely watched within the company and in the press
For Customers of Ü For “really new” products, understanding, even classifying, difficult
New-to-Market
Products Ü Information about NTM products often fragmented and conflicting
Ü Understanding features and benefits, comparing options onerous
Ü Initially, availability may be limited, requiring extra effort to purchase
Ü Being an “early adopter” can be risky
Ü Customers expect prices to drop over time Ü more costly to buy early
“Marketing often exaggerates the likely growth for a "Unlocking [the potential] is proving more difficult
technology or service - adoption typically takes longer.” than early entrants might have thought."
John Carey, CITI Joe Laszlo, Jupiter Research
"Predictions are hard, especially when they are about the future." Yogi Berra
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13. Rigorous, Disciplined Approach Improves Validity
Learning Approach/Tool Description – Examples Available Upon Request
Present 1 Concept Elaboration Adequately describe and explain concept, features so that respondents
Concepts understand, can evaluate, and reliably decide (see p. 15)
Clearly, 2 Storyboards, Use storyboards and multimedia, as appropriate, to describe the
Adequately Multimedia concept, explain key features, and highlight benefits
3 Virtual Prototypes Especially when usability is “suspect,” develop virtual prototypes that
allow consumers to interact with, “use,” experience product
4 faqfind™ Make additional information about concept readily accessible, track how
consumers access and use as they “shop” and decide
5 Qualitative Pretest Verify “usability” of concept descriptions, materials, and research tasks
Obtain Valid, 6 Incentive Compatible Motivate respondents to be “truthful” in answering “will you buy?”
Robust 7 Visualization Prompt respondents to visualize whether, when, how they might use
Measures
8 Robust Choice Models Match choice methodology to objectives, task, competitive realities
9 User-friendly Choice Create “highly usable” choice tasks using IA (Information Architecture)
Tasks principles (navigation, iconography, format, colors, etc.)
10 Timing measures Measure when respondents are most likely to adopt
11 Adoption Barriers Uncover barriers to adoption (e.g., contract, switching costs, etc.)
Calibrate 12 Correct for bias Correct for bias in Choice, Diffusion modeling
Models 13 Disaggregate models Estimate models at segment level (a priori and derived)
Validate 14 Post-hoc Qualitative Conduct post hoc qualitative research to answer “why?” more fully
Findings 15 Track Behavior, Track measures, update model as competitive conditions change
Measures
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14. Elaborating Concepts for Testing is Critical
Goals of Ü Describe and explain concept concisely, in plain terms easily understood by
Concept the average provide consumer
Elaboration Ü Provide enough information so that respondents can reliably evaluate
Ü Guide development, selection of images and multimedia that can efficiently
communicate and reinforce the textual description
Concept Elaboration – Key Elements to Specify
Name* A descriptive name that captures/conveys the essence of the concept
Tagline A memorable phrase that captures/conveys the key benefit(s)
Target Description of who is likely to find it most useful? Why? "How would I know it's for me?"
Description* With as few words as possible, describe the concept. In as few sentences as possible,
describe what "job" it does. In quantitative research, make a more complete description
available to respondents throughout survey as pop-up (accessed by clicking ▲).
Explanation In as few words as possible, explain how the concept works. Answer the question, “Why
should I believe the claim(s)?”
Benefits* What are the key benefits? What problem(s) does the concept solve?
Reference How is it similar to/different from what I'm familiar with, accustomed to, currently using, etc.?
Requirements What do I have to do to purchase, install, or use the service? (e.g., equipment required; where
the service can be used; any drawbacks or limitations that need to be considered?)
* Required; other elements optional, but likely to be useful in developing other materials (especially illustrations, faqfind)
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15. Quantifying Demand for NTM Products – Toolkit
Adoption Model for Adaptive CBC Demand
“Very New Products” (Choice-based Conjoint) Model
Develop questions, hypotheses Develop, present sets of Estimate model to predict:
using theory of characteristics offers to respondents by
• Market Potential
that influence adoption: varying product and service
• Time to adopt
• Need(s), priorities features (including price)
• Demand under various
• Awareness, familiarity Use adaptive approach to
assumptions, scenarios
• Curiosity, skepticism distinguish “must haves” from
• Price elasticity, impact of
• Ability/willingness to pay features willing to “trade-off”
other key drivers
Better Measures, Understanding Accurate “What if” Predictions Business Case Projections
Storyboards and Prospect
faqfindTM Segmentation
Virtual Prototypes
Use storyboards, virtual Develop, present user-friendly Identify segments using LC/
prototypes so that respondents set of FAQs to respondents ummixing. Profile in terms of:
can: • Size, potential
As respondents access FAQs,
• “Experience” product/service track information accessed, • Purchase probability
viewed by each respondent • Adoption triggers
• Understand its benefits
• Demographics
• Assess usability/user experience Summarize, relate FAQs to
• Optimal Positioning
• Envision usage scenarios choices, adoption, WTP
Realistic Interaction, Responses Reveals “Need to Knows” Pinpoint Real Opportunities
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16. About the Author
Dr. Phil Hendrix is the founder and director of immr, a research and consulting firm focused on “very
new” product and market opportunities. He specializes in helping organizations identify, verify, and
capitalize on opportunities for products that are new-to-customers and very often new-to-market. Dr.
Hendrix has developed perspectives and research-based tools to uncover customers’ unmet needs,
reveal hurdles slowing adoption, trigger interest and accelerate purchase, and determine features and
pricing to maximize market penetration. He has extensive experience adapting and applying research
approaches, both qualitative and quantitative, to amplify weak market signals and help clients
Dr. Phil Hendrix innovate successfully.
Director, immr Phil has led significant engagements with numerous startups (such as Company.com) and multiple
www.immr.org business units of Fortune 100 clients in telecommunications (AT&T, Verizon, Sprint, Sony Ericsson,
+1 (770) 612-1488 and others), financial services (American Express), transportation (UPS), insurance (Allstate, United
phil.hendrix@immr.org Healthcare), healthcare (US Oncology), and others. He has worked closely with senior management
and client project teams on issues ranging from “traditional marketing” (segmentation, positioning,
branding) to innovation, user experience, and customer retention. Over the course of his career, Phil
has helped clients conceive and successfully launch dozens of new products, businesses, and
brands. He has extensive experience in B2C and B2B (SMB) markets. He is also a frequent speaker
at industry and academic conferences.
Phil brings a unique combination of academic rigor, strategic perspective, and hands-on experience to
his work. Before founding immr, Phil was a partner with DiamondCluster (strategy and technology
consultancy), founder and head of IMS (Integrated Measurement Systems), and a principal with
Mercer Management Consulting. He has held faculty and research positions at Emory University and
the University of Michigan, where he taught courses in research design and analysis, buyer behavior,
and marketing strategy, and the Survey Research Center at U. of Michigan. After receiving his PhD
in marketing from the University of Michigan, Dr. Hendrix completed post-doctoral studies in applied
statistics and mathematical psychology.
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17. immr’s Focus – Research on New-to-Market Products
• Inspiration (principals/inventors) • Opportunity to leapfrog
• R&D/Technology enablers • Market (size, growth, potential,
• Customers addressable market)
- Unmet needs • Competitive advantage(s)
Source
- Feature fatigue (significance, duration)
- Lead users Ideas • Access to technology/IP
• Ideation/brainstorming • Scenario analysis
- Worst customers • Risk profile
- Worst competitor
• Lead markets What new markets can we pursue, exploit?
• Open Innovation/
Global sourcing
Research Which
Unlock How do we Vet
win the prize?
that opportunities
Demand can we own? Opportunities
Answers
• Build or buy
• Perpetual beta What must we do to win?
• Market experiments • Features (must haves, tipping
(learn and scale fast) points) and WTP†
• Real options Craft • Platform implications
• Doubling down Winning Value • UI/UE (user experience)
• Leveraging network effects • Time-to-market
• Unlocking demand Proposition • Alliance and channel partners
• Triggering viral effects • Business model innovation
• Avoiding the new-to-market chasm †Willingness-to-pay • Positioning
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18. Recent Publications
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